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Chapter 7 Allocating Costs of Support Departments and Joint Products Problem 7-31 DIRECT METHOD, RECIPROCAL METHOD, OVERHEAD RATES OB JECTIVE> Barrylou Corporation is developing departmental overhead rates based on direct labor hours for its two production departments-molding and assembly. The molding depart- CMA ment employs 20 people, and the assembly department employs 80 pcople. Each person in these two departments works 2,000 hours per year. The production-related overhead costs for the molding department are budgeted at $200,000, and the assembly depart- ment costs are budgeted at $320,000. Two support departments-repair and power directly support the two production departments and have budgeted costs of $48,000 and S250,000, respectively. The production departments' overhead rates cannot be determined until the support departments' costs are properly allocated. The following schedule reflects the use of the repair department's and power department's output by the various departments. Repair Power Molding Assembly 1,000 Repair hours Kilowatt-hours 1,000 840,000 8,000 120,000 240,000 Required: I. Calculate the overhead rates per direct labor hour for the molding department and 2. Calculate the overhead rates per direct labor hour for the molding department and 3. Explain the difference between the methods, and indicate the arguments generally the assembly department using the direct allocation method to charge the produc- tion departments for support department costs. the assembly department using the reciprocal method to charge support department costs to each other and to the production departments presented to support the reciprocal method over the direct llocation method. (CMA adapted)

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